Question

3 Stock Y's return has 30 percent more movement than the return on the market. Short-term treasury securities currently yield 2.6 percent, and the expected rate of return on an average stock is 10 percent. The actual current price for Stock Y is $30.00, the next expected dividend is $1.20, and the stock's expected constan growth rate is 8 percent. Should you buy this stock? (Calculate the equilibrium value of the stock and decidei It's worth $30.) b.1.3 Dis 12 Yes, the equilibriun price of the stock is $30.71 No, the equilibrium price of the stock is $30.71 Yes, the equilibrium price of the stock is $28.44. d h , the equilibrium price of the stock is $28.44. KH-103 . Yes, the equilibrium price of the stock is $54.05 KrF-2.6% 18% - No, because the expected prices ks: KRF + (kniker)b Ks- 2.6 -(10-2.5 K6.12.22% k g 2 1922-08

PLEASE EXPLAIN HOW TO FIND BETA?

can you let me know how to find beta with the information given they didnt provide us anything there should be a way to find beta with the given information in the question provided

Answer 1

rate positively ..

	Its given in the question that stock y has 30% more movement than the return on market
	Market beta is always 1. Therefore stock beta = 1*130% = 1.3
	Price should be = Expected dividend next year/(required rate - Growth rate)
	Required rate =	Risk free rate + Market risk premium*beta
			2.6%+(10%-2.6%)*1.3
			12.22%
	Therefore should be price =	1.2/(12.22%-8%)
				28.44
	Therefore answer is option d ) No, the equilibrium price of stock is $28.44